Flood Re – good, bad or ugly?

First announced in June 2013 and originally planned for last summer but delayed again until this spring, the long awaited Flood Re finally launched last month. The not-for-profit initiative between the government and the insurance market promises to lower the price of home insurance in flood-risk areas, making insurance more affordable and lowering excesses for hundreds of thousands of households.

For years, those living in flood-risk areas have been saddled with the problem of having to pay over the odds both in terms of premiums and excesses. Given the fact that the Association of British Insurers says that the average cost of drying out a home and restoring it runs from anything between £20,000 and £40,000, insurers can be forgiven for charging more if they know they’re likely to have to cover that cost.

It is expected that around 350,000 households will use Flood Re to lower the cost of their home insurance. There are reports in the national personal finance pages of flood risk policyholders seeing premiums reduce from thousands to just hundreds of pounds, with others being able to add flood cover back into their household insurance instead of going without.

However, it’s still unclear as to when they will actually benefit from cheaper premiums and it is also unclear how many people are aware of the scheme. Research amongst 1,000 homeowners by Admiral published to coincide with the launch of Flood Re shows that while 67% said they believed flooding would become more frequent, only 15% knew about the scheme.

It also appears that the introduction of Flood Re has pushed some people’s premiums up, possibly as a result of the more detailed studies of flood risk across the wider population of policyholders undertaken as part of the set-up of the scheme. It seems that some insurers are increasing premiums or declining to quote even if there is a modest risk of flooding.

The roll-out of Flood Re has also caused frustrations within the insurance industry itself.

12 insurance brands are signed up to the scheme, but most are offering Flood Re policies through their direct channels. This has got the back up of the British Insurance Brokers’ Association, which is urging insurers and software houses to cooperate to allow brokers to cede customers to the scheme. BIBA claims that there is a “swings and roundabouts” situation with neither insurers nor software companies taking responsibility for a hold-up in brokers being able to cede to Flood Re.

Covéa has confirmed that its broker partners have access to its mid and high net worth products on the scheme and LV has said that it would make Flood Re available in both its broker and direct channels for existing customers. According to the scheme’s CEO, insurers are making real progress with the software houses and “this will all be forgotten about in a few months’ time”.
The ABI has said the launch was never meant to be a “light-switch moment” but that the scheme will grow over time and allow for a more competitive market for high flood risk homes to develop.

I suppose the roll-out of anything new has to undergo a few teething problems and so these issues aren’t surprising. Time will only tell whether this initiative will succeed in bringing much needed relief to homeowners in flood risk areas, especially as the experts reckon that we are going to have to cope with more floods as weather patterns change.Kevin Paterson is managing director of Source Insurance